Your assessment is welcome here: the trade impacts of mutual recognition agreements

ABSTRACT

As tariffs and transportation costs have progressively declined over time, trade obstacles such as technical regulations have become relatively more important, but their impacts remain under-studied. In this analysis we measure the trade impacts of a mutual recognition arrangement established by Mexico with Canada and the United States in the electronics sector. We found that the arrangement induced a positive impact on trade flows, increasing the exports of the products associated with the agreement by around 23%. The finding is important because unlike tariffs, technical regulations cannot simply be eliminated as they are often aimed at legitimate objectives, but their negative effects on trade could potentially be reduced with approaches such as mutual recognition agreements, as shown in this analysis.

KEYWORDS:

• Technical barriers to trade
• mutual recognition agreement
• exports

JEL CLASSIFICATION:

• F14
• F15

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

¹ Many products that enter Mexico need to comply with Normas Oficiales Mexicanas (NOM) standards. The NOM Mark is checked on these products at the Mexico border by Mexican Customs Authorities. The NOM Mark is valid for one year and is issued in the name of the Mexican importer of record, the Mexican manufacturer, or the Mexican distributor of the product

² Normally, product samples are sent to Mexico for testing before NOM certification is granted

³ For NOM-001- SCFI-1993, the scope of the mutual recognition arrangement is limited to the audio and video products. These are the products shown in the second column of Table 1. For NOM-016-SCFI-1993 and NOM-019-SCFI-1998, the scope of the mutual recognition arrangement includes all the products that must meet these two standards. These are the products shown in the second column of Table 1

⁴ The standards apply to an array of different products, including fans, lamps, fridges, and electrical connectors, among others

⁵ In principle, we would have included a country-product fixed effect. Note, however, that once the mutual recognition arrangement entered into force, the set of countries and products affected by the arrangement does not change over time. In other words, our treatment variable is equal to 1 for the same country-product pairs starting in 2011 and for all subsequent years. This lack of variation over time makes the country-product fixed effect highly collinear with the treatment variable, resulting in estimates that are not precisely estimated. This is why we include a country-sector fixed effect, which allows us to still control for country-sector specific factors without being affected by collinearity.

⁶ Note that we are exploiting variation at the product level (some products were affected by the agreement while others were not), at the time level (some products were affected by the agreement only at some point in time), and at the country level (only the exports of Canada and the United States were affected by the agreement while the exports of the other countries were not). We exploit this rich variation in the data to identify the impacts of the agreement

⁷ Starting in 2012, all the coefficient estimates are significant at the 1% level except in 2013 that is significant at the 5% level.